Starting to invest in RE in a different state. Where to form LLC

Tax, SDIRAs & Cost Segregation
4yFollow

Starting to invest in RE in a different state. Where to form LLC

Martin Dillender
Rental Property Investor · Chester Springs, PA · Member since 2019 · 6 posts · 1 vote

Hi all,

Not sure if correct forum but my question is this, I currently live in PA and plan on working my current job for about 5-6 more years. I've got 1 property (inherited) in Missouri being rented and want to invest in more SFH and small Multi Family there as well. Should I form LLC's in Missouri where I plan to retire to or in PA where I currently reside? I will be using a Property Management company in area where investing (Missouri).

I did talk to my CPA in PA who said, "go ahead and do it in PA" but not sure if he is just trying to grow his business :)

Anyone have any tips or gotcha's I should consider?

Thanks for your time.

Martin

0Reply
23 views

6 Replies

Jump to latestLatest
  • Andrew C.
    Investor · SE Wisconsin · Member since 2019 · 111 posts · 71 votes
    4y
    Quote from @Martin Dillender:

    Hi all,

    Not sure if correct forum but my question is this, I currently live in PA and plan on working my current job for about 5-6 more years. I've got 1 property (inherited) in Missouri being rented and want to invest in more SFH and small Multi Family there as well. Should I form LLC's in Missouri where I plan to retire to or in PA where I currently reside? I will be using a Property Management company in area where investing (Missouri).

    I did talk to my CPA in PA who said, "go ahead and do it in PA" but not sure if he is just trying to grow his business :)

    Anyone have any tips or gotcha's I should consider?

    Thanks for your time.

    Martin

    IANAL.  But you’re cpa is incorrect.  Or, at least, that’s not the complete story. Owning property and renting it out is ‘doing business’.  LLCs are state-level organizations. If you create a PA llc you’ll then have to also register it as a foreign entity in the state where the property is. If you don’t, it’ll be doing business in that state illegally and, for example, will have no standing to sue to evict a tenant (since it could not have entered into the contract in the first place).  Foreign registering is usually as expensive as just registering an entity there in the first place. So - create the llc in the state where the property resides.   There’s no issue with owning a Missouri llc as a pa resident. Your cpa can still do your taxes, etc

    0Reply
  • Melinda McDonald
    Property Manager · Kansas City · Member since 2021 · 59 posts · 42 votes
    4y

    HI -

    As you grow your portfolio in the KC area, please reach out if I can be of any assistance.  A crucial part of being an OOS investor, as you know, is property management.  Would be glad to chat!

    Melinda

    0Reply
  • Aaron Byrne
    Lender · Newport Beach, CA · Member since 2021 · 63 posts · 43 votes
    4y

    One element to think about when choosing the state in which to domicile your LLC is the tax ramifications. For example, say that organizing in PA requires you to register as a foreign entity in MO which costs you more initially, but the tax treatment in PA will save you money in the long run as you scale your portfolio. I am not a tax expert and on the surface creating an entity in MO as recommended above seems practical/reasonable. Nevertheless, I wanted to chime in and broach the subject of tax treatment to hopefully encourage you to explore that element of the decision before ultimately deciding on a path.

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    It is normally recommended to form the LLC in the state where you will do business(The state where the property is located).

    [email protected]917-280-8544
    Basit Siddiqi CPA4.880 Reviews
    View Page
    0Reply
  • Martin Dillender
    OP
    Rental Property Investor · Chester Springs, PA · Member since 2019 · 6 posts · 1 vote
    4y

    I can't thank you all enough for the advise.  Greatly appreciated.

    Andrew C. Good to know and appreciated.  

    Melinda McDonald : Thank you.  Really focusing on the STL area as it's where I grew up and plan to retire

    Aaron Byrne: I'll definitely look into the tax implications, including inheritance

    Basit Siddiqi: Appreciate CPA advise

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    It is normally suggested to form the LLC where you will do business in.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.880 Reviews
    View Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free